Useful Free Online Taxation explainers

Here are a list of materials on taxation that I share with my Political Economy of Taxation students as a primer to the subject.

Firstly, here is a video that I made to advertise the course: Why does tax policy matter?

I have also made a video discussing wealth taxes.  

Online lectures/videos/podcasts

Here are some lectures and videos:

Helen Miller “Where does the government get money from? ” Princeton Economics (2021)

James Hannam “Improving the public conversation about tax" Tax Research Network (2020)

Michael Keen and Joel Slemrod “Book Talk: Rebellion, Rascals, and Revenue: Tax Follies and Wisdom through the Ages"

Podcasts (also available as videos)

“When and how to raise taxes” IFS Zooms In (2021)

"Dan Neidle: Why Wealth Taxes Will Backfire Spectacularly" Institute of Economic Affairs (2025)

If you are interested in learning about this topic it would be great to have you on my course!

Book Chapter on Taxation, democracy and legitimacy

I'm really pleased that I've had a chapter included in a new book Taxation, Citizenship and Democracy in the 21st Century edited by Yvette Lind  and Reuven Avi-Yonah (Edward Elgar).

My Chapter (the second in the volume) is "Democratic legitimacy, sovereignty, and international taxation" and it highlights the way that we think about tax and democracy is challenged when we approach the issue from an international perspective. 

Taxation is usually linked to citizenship and democracy. However, there is not a global political system or democracy through which people can express their preferences on taxation on a global basis. That is well appreciated, but at the same time the policies decided in one capital city will impact upon people beyond the border. 

Those who believe that democracy confers legitimacy will be troubled by the fact that the outsiders do not get a vote in a decision that impacts them. Does this mean that we should set up a global electorate when it comes to matters of taxation? Or can some less extreme and perhaps undesirable alternative render the global tax rules legitimate? 

In the chapter I argue that taxation should be subject to international agreements that are negotiated with regard to minimal standards of legitimacy. These do not require full democratic participation, but some other mechanism is then necessary to ensure that the system is justified to all impacted by it. 

I look forward to further discussions with others on this thorny topic, and if anyone has any comments feel free to put them below! 

"Tax Freedom Day" is complete nonsense

Apparently the Free Marketeers have declared today (June 18th) to be "Tax Freedom Day" in the UK.

The idea that people have been working for the government up to this point is really powerful - the nonsense of it all got me thinking of a completely different way of approaching taxation. 

Why not think of a "Tax Freedom minute" within the hour? This led me to develop my hourly averaging proposal, explained in my book Rethinking Taxation. 

Calculating "Tax Freedom"

If you do want to work out how much of your time goes to the government/society and how you get for yourself, then it would not just be be very difficult to do, it would actually be impossible. 

Think about it: 

• How much does anyone "contribute" to society? 
• How much does anyone "benefit" from society? 

If you want to use market prices for one you'd have to do so for the other as well. What is the value of the resources that each person receives over their life, from their families, government, employers and investment gains? I'll come back to this. 

When it comes to contribution things are even harder. 

• Someone who follows the law (and its spirit) is contributing to society, while someone who doesn't is not. 
• Someone who tends their garden thoughtfully and picks up litter benefits others, someone who litters and pollutes egregiously detracts.

How can you put a number on all these forms of contribution? 

Nagel and Murphy in their book The Myth of Ownership, showed this this whole line of thought is based on a simplistic everyday libertarianism. We assume that our gross income is in some sense ours as if we live in an imaginary libertarian economy. 

But we don't live in that economy. We live in our economy, in the real world. 

Tax isn't the only kind of contribution. However, it is an important one and everyone should be happy to pay their taxes out of a sense of reciprocity. 

Benefits received 

Of course, as I indicated earlier, what this "calculation" also misses is that we all benefit from government spending, past and present.

The government provides all sorts of goods and services that benefit us all. 

Some people, as is right, get more from the government than they put in. 

Children aren't going to be contributing, but all being well they will grow up and contribute later on. 

Some older people might not be contributing, but they will have done earlier in life.

If this was an honest exercise it would attempt to account for all the benefits that people receive over their life. 

It isn't an honest exercise, it is just libertarian propaganda that makes no sense. 

Net contributions?

Even if you think it is possible to calculate someone's tax contribution, and that it would be meaningful (which it isn't), the number would vary hugely from person to person.

Some people will get more than they contribute in ways that are right. We should want proper systems in place to support the vulnerable in society and not just abandon them.

Is it forgivable to spread nonsense?

You can criticize the supporters of "Tax Freedom Day" for being selfish, which is probably right. 

Or you can criticize them for being unrealistic ideologues, which is fair. 

But most importantly, they are also just talking nonsense in thinking that the numbers are in any sense meaningful.

People have got a right to be selfish, they have a right to believe and propagate nonsense.

It is a free country after all. 

The rest of us have a duty to see through it all. 

Keen and Slemrod Tax Wisdom and my tax proposals

If anyone is doubtful that taxation is an interesting and important topic, I suggest they read the recent book Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages by Michael Keen and Joel Slemrod. 

The authors are experienced tax experts, but they explain public finance not through dry mathematical equations but through interesting anecdotes and stories. They present numerous unusual taxes and charges that have been applied over the centuries. For instance, a bridge that people without shoes could cross for free while the shoed (shod?) would pay toll. 

The book covers all the important topics to do with taxation and alternative forms of government funding. It even contains a lot of puns in the section title headings, and I wonder if there were some that I didn't get. 

For those interested in finding out more, perhaps while waiting to get hold of your copy of the book, the authors spoke about some of their favourite examples from the book in a video: 

Tax Wisdom

One feature of the book is that towards the end they review some of what they have taken-away from their years of study and engagement with tax systems throughout the world. They end with their thoughts about where tax might be heading in the future. 

I was pleased (relieved) to see that several of their recommendations and predictions included several things that I have attempted to do with my own tax reform proposal, which I have called the CLIPH-Rate tax, set out in my book Rethinking Taxation. 

I thought I would flag up a few of them here: 

New technology

Keen and Slemrod highlight that the use of big-data could be game changing in uncovering tax avoidance and evasion. I agree. 

This, plus greater integration between taxation and the financial payments system, should create a lot of opportunities to do things differently. João Félix Pinto Nogueira has recently argued that there could be a different model of taxation in the future, and I think this is right.

I believe that the use of real-time calculation (as is now applied in the UK) allows a different way of doing tax. And it needn't just be applied to payments from employers. (In the UK this income tax withholding is called real-time PAYE, but there are similar systems with different names in other countries.) 

All financial transfers could be taxed in real-time based on the recipient's current tax-rate. By current I really do mean current - the tax authority could update their tax rate and inform the financial institution to withhold the correct amount on all transactions. 

Integrating real-time tax calculations into all payments means that there would no longer be any need for payments between taxpayers and the tax authority. Any corrections could be applied at the next payment to that individual. 

Of course, this could include "negative tax" payments to increase someone's payment if they have paid too much tax in the past or if they receive additional support from the government, for instance because they have a very low income or require some extra support due to their personal circumstances (disability for instance).  

Integrate the tax and earnings subsidy systems

This leads onto the next suggestion. Running a real-time system with negative tax rates for low-earners, means that the tax system can be integrated with the benefit system, and used to make payments to recipients. 

A potential problem with this is that support systems tend to need to react swiftly in order to ensure that people in difficulty (for instance who have lost their income) can survive. 

However, I think that using technology and providing a Guaranteed Work Programme (which I think should be offered alongside my proposal), it should be possible to ensure that everyone has continued access to an income. Some special benefits could continue separately, while others would be rolled into my proposed single-tax system, and payments could be triggered regularly if needed. 

Extend the tax period beyond a year 

Keen and Slemrod highlight that 365 days is a rather arbitrary amount of time for taxation calculations. Given that it is the time it takes for the Earth to go around the sun, reflects agricultural seasons, and is  the basis of calendars, 365 days is more sensible than a 250 or 450 day tax year. 

Nevertheless, any given year may not be reflective of the taxpayer's overall situation. As Vickrey and others noted long ago, a longer period would be more appropriate. Indeed, where the tax system is progressive, as I believe it should be, this becomes all the more important. Large payments would then be averaged over many years, rather than included within a single tax year. 

I have therefore proposed, a little like Vickrey, that we should apply a lifetime average tax calculation. This has many advantages, but requires a different way of calculating taxes. 

This allows more progressive tax rates, because these rates would be applied across many years of life. As well as being fairer to those who have fluctuating incomes, and more accurate, this means that people would have no incentive to artificially arrange their payments to occur on one date rather than another in order to fall into a particular "tax year." 

Tax economic rents very highly

One worry about taxation is that it will discourage productive behaviour, but this is the case for some taxes more than others. 

Economic rents occur where the owner of something (their land, spare money, their skills/talents or whatever) gets a higher return from employing it than they would require in order to put it to that use. 

Taxes on economic rents are an ideal tax in this regard because they do not impact on economic behaviour. A landlord will rent out their premise to the highest bidder, whether they get 100% of that amount or 50%. Perhaps at a certain point they would decide it is not worthwhile to rent out their premise and leave it unoccupied, but that would mean that they wouldn't be getting any return on their ownership.    

They are also an ideal tax because they tend to be progressive - it is almost by definition the economically fortunate who have the opportunity to generate economic rents. The less fortunate don't have anything on which to generate rents. 

In practice, it is hard to know what rents are ex ante (before the fact). So a pure rent tax is something that exists in theory and not in practice.

However, I believe that my Hourly Lifetime Averaging system would achieve tax rents well by proxy. This is because:

• It taxes all income, earned and unearned in a very progressive way 
• It reduces the tax rate for those who provide their time into the economy through working (or get some credit for not being able to do so)

Tax leisure 

To put it differently, the system I propose taxes leisure. 

This relates to another piece of tax wisdom in the book. Actually, in the book the suggestion is to tax complements to leisure. Taxing the things that people would like to do if they weren't working would make working relatively more appealing. 

I go one step further and just tax the leisure directly. As I note above, the hourly averaging system rewards people who work more hours with a lower tax rate (at least up to a maximum point). 

So someone who has received a lot of income without doing much work (a wealthy heir for instance), would face a very high tax rate (at least until they have worked a lot of hours). Meanwhile, someone who works for a low wage would have a low--possibly negative--tax rate. 

Both have an incentive to work, and the heir can be taxed at much higher rate than under any other system, and the low-paid worker will be able to get a more generous income supplement that won't be as harmful to the economy.  

If someone retires earlier, or works part-time rather than full-time, they would face a higher tax rate on their unearned income. There is nothing wrong with working less, of course. There is more to life than working. However, the wealthy and talented can afford to work less while the poor cannot. Hourly averaging would incentivise everyone to work longer. 

It also retains the incentive to work in higher productivity ways too, since people will always benefit from having a higher income as well. It takes account of hours at work and income, rather than simply income alone. 

Final Thoughts

I don't know what Keen and Slemrod would make of the CLIPH-rate tax. I can imagine they would consider it too idealistic to introduce such a major change, since piecemeal reforms are always easier. They might also argue that it would be hard to administer (they have two chapters on tax gathering and the difficulties in collecting accurate information from people who benefit from hiding this). 

However, it was reassuring from my perspective that the conclusions of the book pointed in the same direction as the proposals that I made a few years ago. :-)

Book Review: Political Philosophy and Taxation

I was pleased to be asked to review a book on Political Philosophy and Taxation for the British Tax Review, and I wanted to provide the text here on my blog for the benefit of those who do not have access to the journal. 

Legal disclaimer: This material is (a slightly edited version of) the review first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ. It was published in the British Tax Review as "Political Philosophy and Taxation (Springer, 2022), by Robert van Brederode (ed.) (2022, 5, pp662-5)" and is reproduced by agreement with the publishers. 

Review of Political Philosophy and Taxation, by Robert van Brederode (ed.) (Springer, 2022)

As someone who teaches an introductory course on political philosophy, I was pleased to be asked to review this work,  which really is—as it claims—the first book providing a comprehensive overview of political philosophy and taxation. The textbook for the course I teach (Wolff, 2015) begins with the suggestion that political philosophy might be about “Who gets what?” and “Says who?”  Put like this, the link between political philosophy and taxation is abundantly clear. 

There are, no doubt, many ways to structure such a book. It could be organised by topic like the abovementioned textbook, which covers the key topics of:

1) The nature and justification of the state.

2) Who should rule? Should we have democracy, and if so what kind?

3) Liberty and rights.

4) The distribution of property.

5) Justice for everyone, everywhere? (On whether Western political philosophy has ignored or excluded any important groups or perspectives.) 

Again, all of these topics are relevant to taxation, particularly property and distributive justice. However, unlike the above textbook, this book is organised around different schools of thought within the Western tradition. The subtitle of the book describes it as a history of political philosophy. The book does indeed provide a detailed intellectual history of several influential schools of (Western) thought on the topic, explaining how key thinkers from those schools approached the topic of taxation, situated within their wider philosophical projects. This is a sensible move. Experts in different schools of thought can then take turns in summarising each, indicating where key thinkers have said anything relating to taxation. 

One question this raises is whether the book is an exercise in intellectual history or directly one of the philosophies and their implications. The first and last chapters by the book’s editor are certainly not intellectual history, but rather direct interventions in debates. The other chapters tended to fit the historical brief more closely, reporting on the relations between various thinkers and their views of taxation.  Two, acknowledged, exceptions were Chapter 8 on legal positivism and the final chapter (11) where the editor provides his own proposal for radical tax reform. There is a good case for organising the book by historical school, though that places additional pressure on the introductory chapter, a point to which I will return. 

Interestingly, most of the authors are not obviously primarily political philosophers, given their departmental affiliations. However, they all clearly know their respective schools of thought very well indeed, often because they use them in their own research on taxation. Certainly, taxation is inevitably a multidisciplinary topic, hence the need for all who write about it to have a good understanding of political philosophy. 

Which “schools of thought” should be included in such a book? The book contains a lot of the ones I would expect, but I found some of the choices surprising. One thing to make readers aware of is that the book leans libertarian, which is clearly the editor’s own approach given the chapters he has authored (the first and last). Perhaps that is a perk of being the editor, but I think it should have been made clearer at the outset, or, perhaps even better to avoid these strong interventions given that they did not fit with the stated brief of the book. 

There are several chapters that are more left-leaning (on socialism, egalitarianism and feminism), so the book still provides a good overview of most of the relevant views of taxation. However, questions can be raised as to whether there was a need for chapters on conservatism, classical liberalism and libertarianism, plus the two non-historical chapters, given the overlap between them. 

I think that the libertarian leanings of the book could give a false impression of the way that contemporary political philosophers would approach taxation. I undertook a poll of 78 philosophers on the topic and one third approached the topic in a liberal egalitarian way (including myself). Thirty per cent took a socialist approach and about 15 per cent consequentialist, most of whom selected “centrist or progressive” rather than classical liberal.  Seventy per cent of responses indicated that liberal egalitarianism represented the dominant approach. A lot of the debates within this school were mentioned in the introduction but not actually presented in the book (except in passing). (For more on the literature see Pedersen) 

There would have been a case for a chapter on luck egalitarianism, and indeed Ronald Dworkin (2006) has an entire chapter on tax justice in a book which was not referenced at all.  

Another omission I thought was discussion of Aristotelian-inspired views (perhaps other than in the chapter on conservativism), which are particularly to be found in theories of desert, participatory democracy and communitarianism. Natural desert is a distributive theory, a rival to Nozickean libertarianism, utilitarianism and the various forms of egalitarianism (see Campbell, Miller). Desert theory is not at all popular with political philosophers—it had no advocates in my poll.  However, there is an argument that desert is the common approach of the public (see Shiffrin).  There was a section on desert in the introduction, but this was a very misleading discussion, presented as an attack on luck egalitarianism, a view which is neither desertist nor—we recall—represented in the book. 

Desert might also be relevant to those who believe that political decisions should be made democratically as a representation of the views of the common good, or as an expression of their views or values. Communitarianism was mentioned as an example of a view opposed to libertarianism in the introduction  but not again in the book. The final chapter did have “Democracy” in the title, but this did not present a history of the arguments for and against democracy, which go back to Plato’s Republic, but was in fact highly opposed to democracy. Agreeing with anti-democratic libertarians that “an electorate that is uninformed, underinformed, or misinformed”  will mean that majority rule “opens the door for the misuse of power to the detriment to the interests of others”.  “Majority democracy violates the principle of equality as it is based on coercion of the many”,  which apparently means that a decision by the majority to impose taxation would violate the “principle of liberty”.  These apparently inviolable principles are neither explained nor referenced.

Philosophy of colonialisation and race is another possible approach that could have been included, though this has methodological affinities with feminism and intersectionality as mentioned in the chapter on feminism. The historical-school approach taken also creates the problem that important contemporary debates are omitted, about global justice for instance. 

Most of my criticisms are of the introduction, as I’ve hinted above, which represents a missed opportunity. The first words of the introduction are “liberal individualism” but what is this and why start with it? Perhaps because methodological individualism was the starting point of Hobbes’ political thought, which later begat liberalism (though Hobbes was no liberal). If the book is written for newcomers to political philosophy it should have explained what that subject is, perhaps mentioning disagreements over method, such as whether liberal individualism is the right approach. Another important thing to cover is to explain the philosophical topics and disputes that bear on taxation, and perhaps to explain some common terminology. These are mentioned, but too obliquely for the complete novice who knows little about the subject. 

The introduction is very long, but far too much of it is spent attacking views that will be presented later in the book. There are seven pages criticising Murphy and Nagel (2002) on “everyday libertarianism,” even though their argument is presented in three pages near the end of Chapter 9 (pp.335–338).  I can understand that their arguments should be presented, since they are very important. However, the introductory chapter should really ease newcomers into the discipline, not simply attack the dominant views. 

The introduction began and ended with a key point that I would expect to find; why have a book on political philosophy and taxation? Some good points were made here, but more could have been added. The book is quite advanced, but it should be useful for graduate students and academics whose work relates to taxation. Tax practitioners may also benefit from considering political philosophy, though they might need to read an introductory text first. However, political philosophers too could be interested in reviewing what different schools of thought have to say about taxation. Those looking to write about tax will also benefit from having the dispersed writings of thinkers compiled together in one volume. 

Overall, as a political philosopher with a focus on taxation, there was little difficulty in selling the importance of a book with the title Political Philosophy and Taxation on me. The chapters were capably written by experts, and I learned a lot from it. Indeed, I found myself wishing that this very useful resource was available when I began my PhD on the topic nearly 15 years ago. 

References:

Campbell, T. (2002). Justice. Palgrave.

Dworkin, R. (2006). Is Democracy Possible Here? Princeton University Press.

Miller, D. (1999). Principles of social justice. Harvard University Press.

Murphy, L., & Nagel, T. (2002). The Myth of Ownership: Taxes and Justice. OUP.

Pedersen, J. (2020). Distributive justice and taxation. Routledge.

Sheffrin, S. M. (2013). Tax fairness and folk justice. Cambridge University Press.

Wolff, J. (2015). An introduction to political philosophy. OUP. 

Afronomics blog: "The Social Contract, Tacit Consent, and International Taxation"

I'm a little late to report on this, but earlier in the Summer I was pleased to have contributed a blog to a Afronomics law symposium : Taxation and the Social Contract in a Post-Pandemic Era: Domestic and International Dimensions

There are lots of interesting blogs on there so do check it out but I'll put a copy of my essay on here as well for completeness: 

The social contract, tacit consent, and international taxation

What do we owe our states and what do our states owe us? This is a difficult question, sometimes answered by invoking a social contract between the rulers and the ruled which implicitly sets out the rights and responsibilities of each.

Matters get even more complicated where international citizens and multinational corporations are concerned. Are they party to multiple social contracts? Or none? I will argue that if there is a social contract, then those involved in the international tax system—including tax evasion and facilitating novel forms of tax avoidance—are party to it.

The Social contract

Socrates famously chose to face death rather than exile when condemned by his fellow citizens. He felt this was his duty to his fellow Athenians, perhaps an early invocation of the idea that there is a social contract between city and citizen.

The social contract tradition is most associated with thinkers such as Thomas Hobbes and John Locke, who considered what life would be like without a state to set rules and enforce them. This stateless scenario is sometimes called the “state of nature.” Hobbes pessimistically assumed that life without a leviathan state would be ‘solitary, poore, nasty, brutish, and short.’ Locke on the other hand, felt that people would respect and enforce natural rights even without a state.

For Hobbes, a social contract to create a state was necessary to provide peace rather than war of all against all. For Locke the state was necessary because people would not reliably enforce natural rights in the state of nature. Whatever the state of nature is really like—and many such as Rousseau will disagree with both these thinkers—the point is that people would come together to create a state.

Express vs tacit consent

Perhaps there were pre-historic acts of state creation among individuals. More likely there was a gradual process of domination by some over others that over time has got us to where we are. Either way, the idea that we now are bound to the state because some ancestor of ours bound themselves is unconvincing. Their consent is not our consent.

Are there are other ways that we consent to the social contract? Voting and pledges of allegiance have been suggested, but these do not seem like reliable and universal instances of consent. If everyone is forced to do these things, then it cannot be taken as a sign of voluntary consent.

Locke believed that “nobody doubts but an express consent, of any man entering into any society, makes him a perfect member of that society, a subject of that government.” For him, then, immigrants can be said to have given express consent. If they are asked to sign an agreement, such as an immigration visa, then perhaps we can agree they have signed the social contract.

For native-born citizens, Locke felt it was enough to rely on implicit, or tacit, consent. Benefitting from the society, whether that be having “possessions, or enjoyment, of any part of the dominions of any government” is taken as a sign of tacit consent. As a result they are “obliged to obedience to the laws of that government.”

Hume’s criticism of social contract theory

David Hume presented a devastating criticism to the idea that all members of society have tacitly consented by enjoying the benefits of society in his essay “Of the Original Contract.” He pointed out that most people don’t even think about the issue, but even if they did, taking enjoyment from society cannot be a sign of consent.

Hume famously wrote:

Can we seriously say, that a poor peasant or artizan has a free choice to leave his country, when he knows no foreign language or manners, and lives, from day to day, by the small wages which he acquires? We may as well assert, that man by remaining in a vessel, freely consents to the dominion of the master; though he was carried on board while asleep, and must leap into the ocean, and perish, the moment he leaves her.

Hume also rejects contract theory in general for other, controversial reasons, and there are plenty of other criticisms of it. Nevertheless, even Hume accepts that the immigrant who settles in full knowledge of the government and laws represents the “truest tacit consent.”

To recap, we cannot rely on tacit consent providing proof that all members of a given society have agreed to the social contract. However, those who immigrate and those who have no major impediments to leaving do not have the excuse that Hume’s “poor peasant” has.

International Taxation

International taxation has received increasing attention recently, as those involved have been using the system to engage in tax abuse. These activities cost billions of dollars in tax lost tax revenue to states in Africa and elsewhere. There are various forms of tax abuse, some clearly immoral and illegal to others that are in a moral grey area. The aim of the tax abuser is to achieve ‘double non-taxation’ where they pay no (or virtually no) tax in any of the countries in which they do business. We can compare what the business would pay if it its entire operation were in a single country

My claim here is that all those involved in international taxation cannot use Hume’s ‘poor peasant’ excuse to engage in tax abuse. Elites and investors are not forced to benefit from a country. I will consider the relevant parties, using Kenya as an example state.

Multinational companies do not have to have operations in Kenya; they elect to locate there based on the benefits they expect to obtain. If they take advantage of their international set-up to evade taxation, or even reduce their tax rate by taking advantage of spurious loopholes and transfer mispricing, then they are breaking the social contract they signed when setting up in Kenya.

Wealthy international individuals similarly do not have to have investments in Kenya. They choose to engage with Kenya and are therefore bound to the Kenyan people via their contract with the Kenyan state.

Taxation professionals, such as lawyers and accountants, are also bound to the social contract. This is going to be the case if they are outsiders who are benefitting from working in Kenya, or even working with clients with interests in Kenya. However, local professionals are also going to have skills that should provide them with opportunities to leave Kenya; they cannot use the ‘poor peasant’ excuse.

Perhaps we can even add members of the local elite as well. They will often have the resources to be able to leave Kenya and would be welcomed elsewhere.

Other excuses or justifications for tax abuse?

Another Humean ‘excuse’ would be that the parties would not have considered leaving, and therefore cannot be said to be tacitly consenting. I think it is enough that the individuals have been in a position where they have made decisions about where to base themselves. This is bound to be the case for multinational companies, of course, but I think it will apply to most individuals involved in the international tax business.

A second line of excuse might be that some states are illegitimate, and it would be better not to provide revenues to governments that violate human rights. This is a compelling argument. However, I would question whether the correct response to human rights violations is to extract wealth from the state. This is not going to make the situation any better. The benefits from tax abuse could be placed in a trust fund to be used to support a future legitimate government. It certainly cannot justify making profits from the state.

What does the state owe?

The social contract is between the state and the people. The state is a supra-human entitle of course, but certain individuals have responsibilities to ensure that the state honors the contract: the head of state, members of government, and high-ranking officials.

They owe the citizens protections from external threats, but also internal ones as well. If the state is illegitimate, as mentioned above, then the social contract is broken. In this case, the international investors should boycott the state, or at the very least engage only in ways that benefit the people of the state and not their oppressors.

My focus here is on international taxation, and in this regard, officials should be looking to ensure that their citizens do not lose out from international taxation. Officials should view tax abuse as a threat to the citizens of the country, and certainly not an opportunity to exploit for personal gain. My focus here is on the other parties, however.

What do citizens and international investors owe?

I expect one main response to my argument will be that the social contract only requires people to follow the law. If those involved in international taxation do follow the law, what is the problem? If they break the law, then they are subject to legal sanction, and rightly so. But does this cover all cases?

In some cases of tax abuse, the law is broken but the state does not realize because those involved hide the situation. However, this is to say that some people who claim this defense are acting in bad faith. Of course, it would be wrong for states to punish those who have not broken the law. However, this does not mean that all those who have not been found guilty have done nothing wrong. They should not fool themselves or the rest of us.

The deeper complaint is that those involved in international taxation should not be actively seeking to enable tax abuse which robs states of revenue in the first place. Hopefully, professionals will already inform the authorities of any wrongdoing, and also inform the government and civil society of any new loopholes.

Multinational corporations might take the position that they have competitors who will be seeking out international tax advantages, meaning that they need to as well. There is no room for expensive do-gooding in the corporate world; do-gooding companies will just get taken over by more ruthless rivals. The international corporate world is akin to Hobbes’ ‘state of nature.’

However, companies and their agents can respond to this situation in two ways. Option one is to advertise that these loopholes exist, to express that they are a source of great regret and that they should be closed as soon as possible. Option two is to quietly take advantage of the loopholes, and to seek out new ones. To seek to empower low-tax and secrecy jurisdictions and to undermine attempts to clean up the system. Option two does not seem compatible with the social contract to me.

Conclusion

Political obligation in general has come under fire from philosophical anarchists, and I have not responded to those objections here (though I remain unconvinced). There are also other theories of political obligation as well as consent theories. But even if tax abusers claim to be philosophical anarchists, I would argue they should avoid engaging with states (perhaps basing themselves in stateless areas of the world) rather than seek to gain from investing in them.

I have not considered all the arguments against consent theories—I have focused on Hume’s early criticism of the social contract. My argument, therefore, is a conditional one. If there is a social contract, then certain participants in society are clearly party to it. This will include those in a position to engage in tax avoidance and evasion using the international loopholes.

References (all accessed 24 June 2020)

Dagger, R. & Lefkowitz, D. "Political Obligation" The Stanford Encyclopedia of Philosophy (2014).

Locke, J. Two Treatises on Government [1688]

Hobbes, T. Leviathan [1651]

Hume, D. “Of the Original Contract” from his Essays: Moral, Political, and Literary [1751]

International Bar Association, Lipsett, L. and Cohen, S. B. Tax Abuses, Poverty and Human Rights (2013)

Plato Crito [399BCE]

Rousseau, J. J. Discourse on inequality [1755]

Money for all? The costs and savings of a Universal Basic Income

The idea of giving everyone in society an income is an old one- Thomas Paine suggested it way back when. However, it is being taken increasingly seriously and the Green Party, Labour and now the SNP are supportive or investigating it.

There are several arguments for some form of Universal Basic Income (UBI). Arguments can be made from philosophical principle, such as the argument that a UBI offers a unique and valuable kind of freedom to all members of society (see the work of Phillipe Van Parijs).  However, another argument is that the UBI would be more economically effective, partly because of the bureaucratic savings involved.

A third argument is that a UBI is necessary because artificial intelligence and robots will cause mass unemployment. I would support a basic income if this occurs but it clearly isn’t going to happen any time soon. I will therefore concentrate on the first two arguments above.

Both those arguments are challenged if a UBI is costlier than its supporters assume. The reason is clear with regards to the second argument mentioned above, but also applies to the real freedom argument. This is because the level of sustainable UBI will in fact be lower than expected and therefore the real freedom offered would in fact be less valuable than expected.

We can split the arguments against a UBI into arguments about fiscal cost and arguments about its likely economic effects. Of course, in practice the two are largely interlinked and I will argue that UBI supporters are probably too optimistic about the latter which makes their cost predictions easier. In approaching this issue I’m happy to ignore the set-up costs of a UBI as these would be a one-off cost, but the likely ongoing costs both fiscal and wider do concern me, as I will outline below.

One problem with assessing detailed basic income proposals is the variety. Each advocate can present different changes to other taxes and benefits to pay for a UBI at their preferred level. Essentially you can tack on whatever tax and benefit changes you want to your basic income scheme to make a total package of changes that will broadly cover the cost of the scheme. However, there will be losers from such changes and often the complexity in the benefit system are there because it is hard to get money to the people who really need it without also giving it to people who don’t. John Kay makes this point well in his blog on the subject, making the point that there will be losers and they are likely to be very sympathetic cases and therefore effective campaigners.

Kay’s blog covers quite effectively the costs and savings of the likely benefit changes, where he charitably assumed that a Green Party proposal was correctly costed so I will focus on the administrative savings argument and the wider economic impacts of a UBI.

So how much would a UBI save or cost?

Free money? On administrative savings

There is one way in which a UBI would generate funds that could benefit everyone without costing anything, which is that the low administrative costs compared to a contingent (non-universal) benefits system. Of course, a lot of the spending is on wages for state workers, who would need to do other work instead (or live on the UBI) but I will take it as read that this is a straightforward saving.

However, the administrative savings wouldn’t be very significant. A pro-UBI Green party paper estimates these savings to be £8bn per year in the UK. Split between 65 million people this amounts to £123 each per year. Hardly a huge amount to write home about.

The Green Party proposal, for example, says that they use £8bn figure rather than the £10bn allegedly quoted in a Citizens Income Trust report to account for this difference. I have failed to find the document quoted and the closest I’ve found to the one described claims a £5bn net saving. Five billion (which I believe is a very optimistic estimate of the overall cost given that those with certain special needs would still need to be assessed) shared out would amount to £77 per person per year.

I believe extra payments for those with special needs would need to remain in place and the administrative costs are undoubtedly concentrated on these. I therefore worry that the more optimistic assumptions about cost savings include taking away such payments which could have a catastrophic effect on people with, for example, expensive disabilities.

A UBI supporter could reply that I’m being unfair by assuming that all members of society would obtain the UBI. This is because other progressive tax changes would mean that only those with low incomes would be net beneficiaries—a much smaller number. So, if we assume the UBI is only shared between 9 million people (roughly the amount of people out of work in the UK at present) then it would rise to £556 per person. If shared between those currently receiving jobseekers allowance this would be an increase of £10 per person per week compared to what they receive at present. This assumes, of course, that the number of those receiving the benefit doesn’t rise substantially (see below on wider economic changes).

Other changes in public finances

The costs of the scheme therefore are mostly found by changing other benefits and/or raising taxes rather than making administrative savings. There will be losers and this is what needs to be assessed.

These wider changes can be done independently of a UBI of course. Another trick in Basic Income papers is the claim that tax revenues would rise due to the basic income. But this means that the state is giving money to people and then taking it back straight away. What matters of course is the net change to people’s income.

An OECD report models an affordable UBI that would be too low to assist in reducing poverty in OECD countries. UBI supporter Karl Widerquist (in his “Back of the Envelope Calculations”) challenges their methodology by insisting that it is wrong to require budget-neutrality when assessing UBI systems. A pro-Negative Income Tax paper by Wiederspan, Rhodes and Shaefer makes a similar argument. These papers rightly point out that net distributive outcomes are what really matter, and anti-UBI writers should take this approach just as UBI supporters should. However, the “back of the envelope” assumptions from these authors would have significant wider economic ramifications as I will outline in more detail below.

Furthermore, as a UBI is less targeted than the programmes it would replace, those with specific requirements (such as disabilities or lots of children) are very likely to lose out, unless the UBI is set so high that it would have very substantial costs. Basically, you can set the UBI low and it won’t cost too much or have economic disincentives or you can set it high and achieve all social goals but with really very concerning fiscal and economic costs.

Wider economic changes

Things get interesting not in the immediate change to public finances but in the wider economic changes a UBI would produce. Put simply, there would be major upheaval as some businesses and industries find they are no longer viable, others become much more successful and further industries boom.

Using current household income data and benefit payment levels, as Widerquist does, to calculate the costs of a UBI is therefore questionable, particularly where the UBI is assumed to be very high and therefore to have a significant impact on people’s employment choices.

Will people leave work?

The most obvious change is that some people who are working may decide to stop and others who are looking for work may cease to do so. Most assessments of the fiscal cost of UBI assume people will still earn the same amounts of income after the system is introduced, which probably wouldn’t be the case.

Supporters of Basic Income trial schemes seize on studies that show that people do not stop working or engage in socially useful activities such as caring instead. However, I would add some caveats to these findings. Firstly, small-scale trials may not replicate an entire society switching to the system, in particular because of the extra attention researchers give to those involved. This attention may improve their personal outcomes in a way that receiving money and no attention may not. Furthermore, if everyone in society is eligible for the income then this may erode the general work-ethic in a way that would not apply in a UBI trial.

Of course, it is all speculation how people would behave differently with a UBI. However, it is part of the point of the system that some people would leave full-time work to do other things. UBI supporters often suggest that people would be able to do useful things such as learning, caring and building up businesses. All of which would certainly be valuable and I would be happy to support assistance to enable them to do so.

However, some people are what I have elsewhere termed leisure-lovers because they wish to maximise their time spent on low-cost activities and therefore seek to work the lowest amount of time to cover their needs. These people are the ones that will make a UBI more expensive overall as they would spend less time (if any) in paid employment under a UBI.

I can think of many examples of people who would count as leisure lovers:

·        Door-to-door proselytisers for their religion

·        Avid readers

·        Amateur historians

·        Rock musicians

·        Artists

·        Fitness freaks

·        Poets

·        Sport enthusiasts

·        Novelists

·        People who like to travel

·        Computer game-obsessives

·        Some may wish to set up a church of their preferred kind (someone seems to have done this in their garden shed near where I live!)

I’m quite sure a non-trivial number of people would follow interests such as these if a UBI made this possible. The rest of society may consider the benefits of these activities to be minimal. If someone sets up a new church or spends their time writing bad poetry will this really help society?

A further and related point is that some people may well choose to retire earlier if they are not forced to wait until a certain age to receive their ‘pension.’  The state pension age is often the trigger for retirement as it then becomes affordable to stop working, but this may cease to apply.

On a personal note, I think I count as a leisure-lover and would therefore benefit from the UBI scheme I am arguing against. I prefer to spend my time reading, researching, teaching and writing than working a 9-5 job. I hope that my doing these things is socially useful, but I imagine many people would consider that it would be more useful if I was engaged in full-time paid work instead.

The existence of such leisure-lovers is a problem for UBI supporters because they threaten to increase the costs of the scheme without providing the alleged benefits. The direct costs would be that this would mean that more money would be getting paid out to recipients and less money would be collected in taxes. This could quickly blow a hole in the calculations. However, this would also have wider economic effects, as I will also discuss below.

Tax Credits

Most proposals for a UBI involve it replacing tax credits (also known as employment subsidies and called the Earned Income Tax Credit in the USA). Some on the left are very opposed to tax credits because they see it as subsidising employer profit rather than employee wages. However, there is every reason to believe that these are good for employment rates and workers.

The extent to which the employee and employer benefit from the credit will vary from case to case. In some cases, the employee will get all the benefit, while in others the employer will capture the lion share. However, note that the latter cases could include some whole industries that would not be competitive in wealthier countries without tax credits.

Some on the right would say it would be better for such industries to die off while others on the left would claim that such industries should be protected or subsidised to keep them going even though it is cheaper to produce such items abroad. However, in the first case the upheaval would be much more damaging and possibly costly than the continuation of earnings subsidies. In the latter case, if the state is saving an industry by paying it money or forcing consumers to pay more for its goods then how is this any better than providing tax credits?

This section has moved away from the UBI, but the point is that the UBI will tend to help industries that find it easier to recruit, whereas tax credits help industries that struggle to compete internationally and help keep consumer prices down. I imagine there would be more computer-game start-ups but fewer manufacturing plants. Maybe this is a good thing – computer-games are a profitable and growing industry. However, it seems like a more diversified economy is a much safer bet than a more ethereal one.

Price rises

One advantage of a UBI is that it will improve the worker bargaining position, which is a good thing. I would support doing that through the provision of a job guarantee scheme (see below) which would also have a similar effect.

However, a consequence of improving worker bargaining is that it will likely lead to price rises for consumers. In addition, as highlighted regarding tax credits, it may also undermine some exporting industries as well.

A UBI would also (in some cases intentionally) lead some people to choose to leave the labour market. If more people do so this would reduce the pool of workers available and again put pressure on wage rises.

The correspondingly higher wages can also result in a reduction in employment in some sectors and/or price rises. Unemployment might not be considered a problem given that people will have a guaranteed income, but this will then increase the direct and indirect costs of the scheme. Of course, it could be that all those laid off will become entrepreneurs, but what if they don’t? What if they give up on paid work entirely and there is a smaller pool of workers available as a result?

Now, there would be a compensatory price reduction in some areas. It might become cheaper to acquire items that people enjoy producing; artisanal products might become cheaper and people would quite possibly enjoy their work more. These are good things for those people, but the rest of society will end up paying more for most of their goods and services with a UBI.

If the price of labour, goods and services do rise, as I have suggested they would, then this will also mean that more government expenditure will be spent on goods and services, putting pressure on

Summary of my claims

I have claimed above that a more dynamic assessment of the complex consequences of a UBI would likely show that there would be a lot of additional costs. These would counterbalance the gains—if prices rise then the basic income loses effectiveness and so would either need to be raised or would be less effective at reducing poverty than advertised.

Of course, perhaps a basic income would lead to significant productivity advances and corresponding rises in income. However, if the point is that people are free to earn less than they would otherwise then it seems that overall lower productivity would result.

What matters in the final analysis is the distribution of the benefits and costs of the system. This is hard to work out even ignoring the dynamic economic consequences I have raised above.

It is wrong to assume that a UBI would be a fantastic panacea. The devil would be in the detail and its (difficult to predict) overall economic effect. It would benefit some people, of course, such as those who want to pursue uneconomic or risky dreams and ventures. Mainly, it would benefit those with strong a preference for uneconomic activities—a group we can refer to as leisure lovers (of which I am almost certainly one so I’m arguing against a system from which I would benefit). It would almost certainly help the low-paid, though I would contend that other proposals such as mine would be more effective in this regard.

Alternatives to a basic income

The alternative to a basic income is obviously not to have a basic income (as is the case everywhere at present). But that isn’t to say there aren’t other policy proposals out there which could make a difference to people’s lives.

I would obviously point towards my own novel tax and benefit system, the CLIPH-rate tax. However, other alternatives include the following:

·        A Participation income – proposed by Anthony Atkinson, this is similar to the basic income but dependent upon engaging in approved activities. (My CLIPH-rate tax proposal similarly allows hour credits for participation in a range of activities such as caring and study and not just paid employment.)

·        Tax credits to encourage people into work and to encourage employers to create more jobs (discussed above).

·        A job guarantee scheme which ensures that anyone willing to work can do so and get paid. This is included in my CLIPH-rate tax proposal as people capable of working need to have access to hour credits to receive income without corresponding tax-rises.

All these proposals also have costs and therefore require higher taxes or other public finance savings to pay for them. However, because they seek to encourage people to engage in socially useful activity they would not have as big an impact on the wider economy as a UBI would.

Overall, the UBI isn’t the perfect panacea some of its fervent advocates assume it to be. Some people would lose out from it and society would face an expensive bill if many people take the option to follow their personal interests or retire earlier as a result of the system. 

Interpreting and applying Dworkin’s hypothetical insurance

I have realised that I have not blogged about an article of mine published in the journal Moral Philosophy and Politics entitled The Holistic and Policy-Focused Interpretation of Hypothetical Insurance.

In the paper I consider the best way to understand and make use of Ronald Dworkin’s hypothetical insurance scheme. This is a procedure to determine fair policies to help the less well-off by asking people what they would agree to pay and receive if they did not know whether they were fortunate or not. So to work out how much people who suffer from an illness should get you ask what insurance people would buy themselves if they didn’t know whether they have it or not. If sufferers get less they are not being treated fairly. Conversely, if non-sufferers provide more to sufferers than they would have agreed to receive in the hypothetically equal position then they are not being fairly treated.

This lends itself to an interpretation of the approach that each of these decisions involves a separate decision about a transfer of resources from the fortunate in that regard to the less fortunate in that regard. Add up all of these transfers and you work out how each person should be paying or receiving all told.

The way Dworkin presented the approach lends itself to this interpretation, but he does make clear at times that he isn’t just talking about resource transfers—providing blind people with guide dogs and paraplegics with wheelchairs and carers might be a more sensible insurance choice than giving money.

I believe the best interpretation of Dworkin is a holistic one that allows the parties to hypothetical insurance not in terms of simple payments from fortunate to unfortunate but as a selection between the policies that are available to tax the fortunate and assist the less fortunate from a position of hypothetical equality.

This interpretation contrasts with the idea that each insurance choice is hypothecated from the others so money from inheritance taxation would have to spent to alleviate social inequality rather than go into a big pot to assist the less fortunate. It also contrasts with the insurance-focused understanding of Dworkin that implies that transfers are necessarily the main tool for sorting out inequalities (basically all sensible policy options are open to people to choose in their hypothetical insurance deliberations).

I believe my holistic interpretation better fits with the ideal of resource egalitarianism that people should have as much choice as possible from an equal starting point. It does so by allowing people a choice over the policies that will be used to achieve their insurance preferences.

My suggestion is that Dworkin’s insurance model can be readily applied to tax and benefit policies; though admittedly in some cases it will generate much more determinate and definitive answers than others. On some issues you might need to find out a lot about people’s attitude to risk, their values and the likely effects of various policies in order to work out the fair distribution. However, in my PhD thesis I argued that if you apply this reasoning to the taxation and benefit options then my CLIPH-rate tax proposal would be the popular choice for people choosing from an equal position.

UK Inheritance tax - why on earth do a lot of people support the proposals even though they shouldn't?

I could write lots of different pieces explaining why the recently leaked inheritance tax changes are economically foolish and make our society less just.

For example, the changes might further heat the dysfunctional housing market—even the rabidly libertarian “Tax Payers Alliance” have queried the wisdom of a policy that gives a tax break to one class of investments—housing. If anything, governments should be doing everything in their power to make housing cheaper not more expensive.

The important fact is that it is reduction of the tax taken on the most obvious of all tax bases – unearned income. And why? To benefit a relatively small number of people who are children of the wealthy.

What I will write instead is about how on earth people will go along with it. Why won’t people be rioting on the streets against a policy that makes no sense in terms of economics or fairness?

Well, the right-wing press such as The Daily Express and Daily Mail have predictably come out very strongly in favour of it. The argument is that people who have paid tax on something shouldn’t have to pay it again, but this is nonsense.

Even an egalitarian such as me would argue that people should be able to keep their property unless it was a matter of national concern that it be taxed or compulsorily purchased. Inheritance tax is not such a tax, however. It is just a crude way to tax beneficiaries in the most convenient way for governments. A more principled approach would be to tax the recipients of bequests but also substantial gifts, as would be done with an accessions tax or my own tax proposals.

If we get rid of the double taxation argument, then, what is left? My theory to explain how the right-wing press can hoodwink its readers into supporting a mad proposal like this is by tapping into a feudalist vein in British thinking.

House ownership is a big part of the recent British psyche (or is it psyschie?) and it represents a major part of many people’s self-identity. They are lords of their suburban castles. British (perhaps English) people buy into the regressive idea of a class system much more than any other country. And what do feudal lords do? They pass their castle onto their children (well, first born male, but the whole edifice breaks down when moving into the modern economic world anyway).

Inheritance tax doesn't even stop anyone from passing their house onto their offspring anyway. Even if the estate did not have the liquid assets to cover the tax this would not stop the squire from taking ownership of the house. They would simply have to pay the difference between the value of the house and the inheritance tax due.

So under the existing (extremely generous) system a widow with one child who dies with only an 800k house to their name at present would have a 60k tax liability. The child would have to find 60k to buy a very expensive house. If they haven’t saved up the money they could just get a mortgage to cover the difference.

No one would provide an intellectual justification for feudalism, but I think that vestiges of this line of thinking are the only reason that people would support the latest IHT changes. Is this really where we are? People supporting terrible policies that almost certainly won’t benefit them or the country as a whole ‘because feudalism’?

Tax Freedom day

Every year right-wing ideologues and libertarians declare a particular day ‘tax freedom day.’ I am firmly of the belief that this is nonsense that serves a very pernicious ideological agenda.

Tax freedom day is not a complex thing to calculate. You can simply take the percentage of the economy that goes through the government’s accounts as a percentage of the total economy and apply this percentage to the 365 days of the year.

Of course, it is assumed that people will be unhappy at having ‘worked’ so long and presumably got NOTHING in return. Ignoring of course the fact that people will have gained all sorts from the government spending, and also that those who are very fortunate might be happy to be contributing to their societies and the lives of those who are less fortunate than them. 

People get things in return for their taxes, and some people benefit from government spending more than others. Hopefully those with greater needs will be those who benefit the most. This is the first problem with the idea of a ‘tax freedom day’ – everyone’s tax freedom day would be slightly different from everyone else’s.

The fundamental flaw in the whole concept is that in elevating private earnings and denigrating government spending it ignores the fact that these are both part of a whole system. If the tax system were radically different then the entire economic system and society as a whole would be different—people would be in different positions and make very different decisions.

To illustrate this point think of David Lewis’ possible worlds or science fiction storylines involving parallel universes within the “multiverse.” If the tax system were different this would mean a different economic system. The important question is which of these possible worlds has the most just distribution of the resources of society and how we can move to this scenario.

The important issue is the counterfactual policies that are available to government and which will be better and worse. The proportion of the economy going through the treasury in a given year is of no real relevance; what matters is whether the system is working as well and as fairly as possible for the members of the society.

So the idea of tax freedom day is nonsense. However, I do think that one good thing has come out of this nonsensical “event.” It was my anger at this led me ten years ago to think of a better way of calculating tax than on an annual basis.

It seemed to me that working out an annual average amount was unhelpful and that if you wanted to work it out it should be done on a personalised basis and then compared to the amount that you should be paying given your position in society and your ability to contribute.

Indeed, rather than work it out on the basis of one’s income per year it would be better to work it out on the basis of one’s income for each hour worked. This led me to develop my hourly averaging system which I explain in my book. After all, (most) people are offering their time to the economic system and yet some get a lot more in exchange for this time than others.

In summary, I would suggest treating with suspicion any “think tank” or news outlet which peddles tax freedom day. They show their intention is to impose a particular kind of attitude to taxation and state spending rather than (what would be legitimate concerns regarding) the effectiveness of the tax system or government spending.